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A few thoughts on Champagne

by Wine Owners

Posted on 2016-08-09



From an investment perspective champagne has delivered solid if unspectacular gains year on year, as the chart below shows. Since the start of 2011, the WO Champagne Index (pale blue line) has steadily moved up, displaying little of the volatility of the wine market at large, as represented by the WO 150 Index (purple). A 5 year increase of 55% is pretty impressive by anyone’s reckoning in this day and age.



Ask most champagne lovers to name the three most important champagne marques, and the vast majority would plump for Dom Perignon, Krug and Cristal – let’s call them the Three Musketeers. These are by far the most likely to be found in collections, and have international standing as the benchmark for top quality, premium fizz. My question is that if we assume most collectors will hold at least one, if not all three, of these in their cellars if they are champagne followers, which champagne is best placed to play the role of d’Artagnan to their Porthos, Aramis and Athos?

There are several pretenders to the throne. Bollinger RD, Perrier Jouet Belle Epoque, Pol Roger Winston Churchill, Armand de Brignac Ace of Spades – these and a host of others are a match for the quality and cachet of the Three Musketeers, but there is one name that I think stands out, and one whose financial performance and quality cannot easily be overlooked.

That wine is Salon ‘Cuvee S’ Le Mesnil. Despite its relative anonymity – there are many better known marques – this champagne is viewed as the apogee of champagne making by those in the know. Ruthlessly (almost self-defeatingly!) small production quantities and a quality control regime that makes North Korea look like a hippy commune have enabled Salon ‘Cuvee S’ to reach prices that are eye-wateringly expensive across the board. Despite this its prices have moved up more dramatically that most champagnes for vintages from the 1990s, and even more recent vintages from the 2000s have shown growth despite much higher release prices.

So, if you can find it at the right price, Salon ‘Cuvee S’ is perfectly placed to play the role of the Fourth Musketeer. All for one, and one for all…


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The Battle of the Bottle

by Wine Owners

Posted on 2016-08-02


Will it be Bordeaux or Burgundy where the smart money goes in 2017?

It is well known that over the last few years the wines of Burgundy have substantially out-performed their Bordeaux cousins. The chart below vividly represents this:

Since the start of 2012 the Blue Chip wines of Burgundy (purple) have risen consistently year on year to now sit around 50% up in 4.5 years, whilst First Growth Bordeaux (green) has fallen nearly 20% in the same period . An astonishing disparity accounted for by the Bordeaux bubble of 2009-2012 caused by the market discontinuity of early Chinese demand and trade speculation that accompanied it. Even the Bordeaux Medoc Classed Growths (light blue), that withstood the crash in Bordeaux prices far better in general than First Growth royalty, only managed an increase in value of 15% since the start 2012, but this is entirely down to the last 15 months.



So, what do we think of the potential of these three vital segments of the market in terms of future performance? Will Burgundy continue to rise regardless, or will Bordeaux be resuscitated?

This next chart might help put things in context. It is of the same three indices above, but within a timeframe of the last 9 months only:



All indices are over 10% up over this 9 month period. Excellent news. You should also notice the similarities in their trajectories, showing growth in both regions. Again, good news. You should then discern that it is the two Bordeaux indices that are leading the way. To be precise, The Bordeaux Medoc Classed Growth index is up 16.6%, First Growths are up 13.5% and Blue Chip Burgundies are up 11.3%.

Now, of course, these time-frames are arbitrarily chosen, and it could be possible to draw other conclusions by choosing different representations of the same data. But that misses the point. We do believe that the improvement in fortunes of Bordeaux is likely to be a major theme of the next 18 months, and it is reasonable to suggest that increased interest, and resurgent sentiment, in this pre-eminent region may mean Bordeaux prices rising more steeply than Burgundy prices.

The Burgundy market is unlikely to fall prey to the same rapid boom and bust cycles that affected Bordeaux between 1991 and 2014, but we think it is a fair and proportionate response when looking at the prices and bid/offer spreads available to think that the very top of the Blue Chip Burgundy market may have run its course for now, and that to risk increased exposure to Burgundy might not be the best idea if short-term return on investment is your primary motivator.

Yet it's notoriously difficult to call the top of any market, and this viewpoint needs to be set against the severely reduced yields in 2016 in certain parts of the Cote D'Or that will push up 2016 release prices in 18 months' time, and may inflate the very good 2015 releases next January. What effect this has on back vintages remains to be seen.



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Sometimes it pays to take the path less travelled….

by Wine Owners

Posted on 2016-07-25


It is fair to say that in the recent improvement of fortunes in Bordeaux prices, most focus is given to the classed growths of the Medoc on the Left Bank, and the top wines of Pomerol and St Emilion on the Right Bank. The recovery over the last 12 months has been significant, as seen below, with the Medoc Classed Growth Index (the turquoise line) rising by over 23%  and the Libournais Index (purple line) up over 18%. Great news for all those people who have experienced the huge price correction of 2011 to 2014.



But, when looking at Bordeaux as a whole the focus should perhaps swing further south. See what happens when I add the Graves Classed Growth Index (the purple line in the chart, below) into the mix. Over the same time frame the wines of Graves, headlined by Haut Brion and la Mission Haut-Brion, have leapt up by over 30%, outstripping their neighbouring appelations. 

Even when you take into account the Brexit effect, which has seen a weak pound in the past month provide a boost from sterling denominated stock as HK and US buyers pile in, this still represents a huge return to form. The lesson here is to realise that the 1855 classification (which ignores Graves, with the notable exception of Haut-Brion) and finest wines north of the Garonne are not the be all and end all. Look south, towards Graves, and you will find a raft of excellent wines that have improved dramatically in the last few years in many instances (think Smith Haut Lafitte, Haut-Bailly, Pape Clement), and which represent both great quality and great value. It is perhaps important that the gravelly, smoky, pencil lead and pencil shaving notes which characterise the best wines of Graves have few, if any, imitations around the world. Bordeaux blends from other continents tend to mimic the Medoc or the Libourne, and so the terroir-specific nature of Graves wines perhaps gives them a uniqueness that collectors ascribe value to in the same way as they do in Burgundy.



Sometimes it pays to take the path less travelled…. 





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Brexit: what it means for fine wine, and other market trends

by Wine Owners

Posted on 2016-07-21


The past few weeks have seen significant movements and activity within the fine wine market, with the closure of the En Primeur campaigns and the devaluation of sterling kicking the market 4-5% higher.

Whether this situation lasts following the surge remains to be seen, but combined with the upward movement of the market in the preceding few months, and 21 months of increasingly solid gains in the Bordeaux market, it makes for an interesting period.

We've put together our updated set of Fine Wine Predictions for the second half of 2016, including thoughts on the impact of Brexit, tips for collectors, and analysis of buying trends in the market.

We hope you enjoy reading the report, and would love to hear from you if you have any questions, are looking for specific guidance, or want to join the conversation.


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Pre and Post Vinexpo 2016

by Wine Owners

Posted on 2016-06-10


There’s a clear division between 2015 En Primeur releases before Vinexpo Hong Hong and those that have been announced since. It begs the question, why?

It's not just that the bigger Chateaux are the ones releasing later. After all, many important names had released well beforehand.

The answer is what happened whilst the producers were in Hong Kong.



We understand that producers were taken aback by the demand they experienced this year at Vinexpo, and they boarded the flight home with bulging order books.

For every producer who wants to sell the new wines through En Primeur and recognises the importance of providing a future upside for buyers of non-physical stock, there are others who see a new opportunity within the changing global fine wine market.

Bernard Magrez was full of the joys of spring at Vinexpo Hong Kong, confirming he had sold out of his impressive Chateau Pape Clement in 40 minutes.

He was refreshing in his analysis, saying that he knew he’d left money on the table for the merchant and En Primeur buyer, which he saw as a positive for the property’s burgeoning reputation. Surely if you’re going to be part of En Primeur that’s the way to do it: body and soul.

Many others however have been eyeing life after En Primeur for some time, but have held back from backing one horse or another by the generally morose market conditions. With green shoots appearing over the last 12 months, few were in the mood to risk seeing them wither.

But what they experienced at Vinexpo may have shifted the balance further away from genuine, tangible broad-based support for En Primeur.

The Chateaux owners were surprised by the jump in orders experienced for their back vintages. There was a realisation that the wine market in China was coming back after 4 years of austerity and Party approbation.

The politics seem to be loosening up a touch, the consumer is spending again and contributing strongly to GDP growth, imports of luxury goods are steady (and proportionately performing better than exports).

Not that the Chinese buy En Primeur, there’s still almost no market there for it there, but with physical stocks in Bordeaux being soaked up by a sharp uptick in demand, it’s hardly surprising many producers are choosing to hold onto significantly more of the new vintage, so that they can serve the Asian market further down the line.


                                                                                


What a relief it must be to see all those accumulated bottles sell.

If it’s all heading towards producers being the stockholders and focusing on selling back vintages at premium prices, the one thing I’d say to them is, don't confuse the issue by using the En Primeur system as purely a promotional opportunity in the marketing calendar to get press and attention, if you don't care so much if any actually sells. It creates mixed messages.

I am super-impressed by what Palmer are doing in terms of developing sales channels worldwide, focusing on selling physical stock, staging stunning auctions through their negociant shareholder, creating a brand to rival the Firsts - but the En Primeur thing just muddies the water and undermines the brilliance of everything else.

If the recent Sotheby’s auction of Chateau Palmer in Hong Kong points the way to selling En Primeur by the barrel to high rollers with privileged access thrown in, I would surely go down that route as a producer too. The equivalent of £10,800 per 9 litres (12x75cl) before seller commission is simply amazing if you can get it.



“Chapeau”. I raise my hat to the Chateaux who go the full-on brand-building route and do it this well - but why risk the negative sentiment and comments that a perceptually very high En Primeur release price creates? There are simply too many foreseeable consequences: negative comments (mea culpa); anxious merchant emails to clients warning them off; negociants dropping prices during the course of the same day the release happens in a mildly desperate attempt not to be left with expensive stock that might/ will have to be written down; and static or lower secondary market prices that will make consumer buyers feel negative about the brand due to being under water ‘x’ years down the line.

With Asian appetite for Bordeaux on the rise once again, the moment may have arrived when more and more producers will respond to the shift in demand for primary market releases of back vintages by backing the new horse. It’s a complicated decision with a brew of old allegiances, dependent market structures, local friends, brand building, rising land values and a changing global market. Watch this space.


The problem with high releases

by Wine Owners

Posted on 2016-06-08


Remember spring 2011. In Bordeaux there was an early April heatwave, that added to the feel-good factor felt by producers and merchants alike. All agreed, this was a golden age for Bordeaux.

The wealthy were getting wealthier, raiding the post–Lehmann EU Agricultural Support Fund, citing 'agriculture' status so that they could construct new chais. It seemed taking the piss had become institutionalized.

By the late summer, barely 4 months after that balmy spring, it was over. The bubble had burst, but not before the world and his wife had piled into overpriced Classed Growths.

Fast forward 5 years, and the negative market sentiment created by those purchases by traditional and new En Primeur buyers has all but dissipated. The good news is those who were deeply under water on the back of 2009 and 2010 purchases are now in the shallows and feeling rather more positive about their purchases and their outlook.

This has been helped by the fact – there, I said it, by the FACT - that there hasn’t been a vintage to touch those two monumental years since. Not 2011 and 2013 of course, neither 2012 nor 2014, and surely not 2015 either. To be a great vintage Bordeaux needs to be uniformly wonderful across its communes, and 2015 was far from uniform. It’s a very good vintage overall, but not a great one. It will not join the pantheon.

The prime reason why Bordeaux suffered so badly over the period 2011-2014 was negative sentiment, and nothing fuels negative feelings like losing money on paper.

It is for that reason 2015 may well prove to be a watershed in the history of En Primeur.

Many Chateaux released at realistic prices that made their wines sensible buys – wines like Pape Clément, Rauzan-Segla and Canon, Leoville Barton, Pontet Canet, even Lafleur and Tertre-Rotebouef.








More Chateaux than not released too high. What do we mean by “too high”? After all, it’s a relative term. Our definition of too high is a price that will prove not to give a discount against future market value or which could end up having been more expensive than the future discounted secondary market value in 2-5 years’ time.

In the last few days, a few Chateaux have pushed the boundaries of credulity, releasing wines at such a high price that there is 90%-99% downside attached to buying early.

Wines such as Pichon Baron, Lynch-Bages and Palmer. As the graphs show, none offer much by way of upside and plenty of downside risk.







None of this matters to the informed, rational fine wine buyer. They simply need to say ‘no thanks’ and move on, selecting affordable back-vintages to enjoy, lay down for future drinking, or to use as a store of value.

What does matter is when less well-informed buyers are badly advised and sold into the vintage’s more expensive releases, only to find out a few years down the line that the wine has fallen in value, those losses further exacerbated by broker commissions. If you end up with enough buyers “under water” goodwill built up painstakingly over time evaporates.

In this campaign some merchants are saying things like:

Qualitatively, 2015 has been compared to previous greats of this century - 2010, 2009, 2005 and 2000 – when looking at price compared to these greats, the wines of 2015 have broadly represented good value with most estates benchmarking against these years and releasing at lower prices – which is quite refreshing.

Not only is the premise wrong, it encourages irrational buying behavior based on unrealistic expectations and stores up future negative sentiment.

This is a shame, for Bordeaux has the greatest, largest single body of wine in the world to offer. The greatest expressions should bring the greatest joy, not deliver disappointment.


Market Trends - March 24, 2016.

by Wine Owners

Posted on 2016-03-24


Sales of Bordeaux through the exchange saw a significant increase on the preceding month, rising from a 75% share of the market to 88%, the highest market share since the launch of the exchange in 2013. Bids overall in Bordeaux have increased in value by 2 percentage points, perhaps reflecting a slight upturn in confidence in the market.

The steep rise in Bordeaux’s market share overshadows other regions, pushing Burgundy right back to 5%, though the figure reflects less a decline for Burgundy than the strengthening of the market in Bordeaux. Volume and value traded were in fact similar to the preceding period. Rhone had a poor showing overall, dropping market share to 1.3%. Again, the figure is skewed by Bordeaux, but in any case volumes were down, mitigated only by a flurry of interest in Henri Bonneau triggered by the announcement of his death on Wednesday. The remainder of the market was shared almost equally between Champagne and Italy, where trading in top level Barolo oustripped Supertuscans two to one.

As usual, the First Growths accounted for the lion’s share of the Bordeaux market, 72% of the value of Bordeaux trades were made up of 1ers crus and their right bank equivalents. Several large trades in Haut Brion saw that wine take 61% of the value of 1st growth trades, though Mouton continued to hold its own at 11.7%, down by percentage on the preceding period, but up in overall value and volume. Lafite remained strong at 5.8%, with Latour and Margaux lagging behind. Petrus showed strongly too, picking up a share of 11% among the 1st growths, though the high value of these wines always has a tendency to distort market share by value.

Access the Trading Desk to view recent trades, bids & offers.



 

 


Reasons to be cheerful?

by Wine Owners

Posted on 2015-10-29


Quite a lot of members we speak to these days assume that the market prices of Bordeaux are still stagnating or falling. The morosité that had descended on the region's finest wines in by 2012 does not appear to have lifted. 

Wine traders will point to volumes that are much reduced since the giddy heyday of 2009-2011, and that is of course true.

However, it does not mean that in aggregate, prices of Bordeaux have begun an upward trend.  In the last year, the Wine Owners Medoc Classed Growth Index is up 8.2%.

 

Whereas the Wine Owners First Growth Index has only managed half of that in the last year, up 4.1%.


That's still better than the performance of the FTSE100, which is fractionally underwater over the last year, and exactly where the S&P500 has clawed it's way back to after the summer's wobbles.

Wine Owners 150 = Turquoise

FTSE100 = Navy

S&P500 - Green

However, when looking at First Growth performance over the last 12 months, it is far from broad-based. 'The further they rise, the longer they fall' seems to hold true, with Lafite 1986 and 1989 performing the worst at -8% and -9% respectively.

Chateau Haut-Brion Pessac-Leognan Premier Cru Classe AOP1999-5.45%£ 216.68
Chateau Latour Pauillac Premier Cru Classe AOP2006-5.75%£ 286.67
Chateau Haut-Brion Pessac-Leognan Premier Cru Classe AOP2009-5.82%£ 441.67
Chateau Haut-Brion Pessac-Leognan Premier Cru Classe AOP1982-5.92%£ 436.68
Chateau Lafite Rothschild Pauillac Premier Cru Classe AOP1982-6.29%£ 1,810.14
Chateau Latour Pauillac Premier Cru Classe AOP1998-7.15%£ 270.83
Chateau Haut-Brion Pessac-Leognan Premier Cru Classe AOP2006-7.26%£ 212.50
Chateau Margaux Premier Cru Classe AOP1989-7.59%£ 250.10
Chateau Lafite Rothschild Pauillac Premier Cru Classe AOP1986-8.13%£ 651.48
Chateau Lafite Rothschild Pauillac Premier Cru Classe AOP1989-9.11%£ 395.92


Among the vintages populating negative territory, 1986 has suffered with the exception of the very great Mouton. The exceptional 1989s and 1990s have fallen, along with with the dull 1999s.

The risers are headed by Mouton, Haut Brion and Latour. The top 10 performers registering double digit growth are entirely accounted for by these three Châteaux.

WineVintageChange 1 yearPrice
Chateau Mouton Rothschild Pauillac Premier Cru Classe AOP200522.39%£ 366.67
Chateau Mouton Rothschild Pauillac Premier Cru Classe AOP200821.13%£ 262.54
Chateau Haut-Brion Pessac-Leognan Premier Cru Classe AOP200520.95%£ 437.50
Chateau Mouton Rothschild Pauillac Premier Cru Classe AOP199616.87%£ 282.74
Chateau Latour Pauillac Premier Cru Classe AOP199014.30%£ 429.12
Chateau Latour Pauillac Premier Cru Classe AOP200513.36%£ 566.79
Chateau Mouton Rothschild Pauillac Premier Cru Classe AOP200013.32%£ 1,038.81
Chateau Haut-Brion Pessac-Leognan Premier Cru Classe AOP200811.00%£ 226.64
Chateau Haut-Brion Pessac-Leognan Premier Cru Classe AOP19899.08%£ 1,000.03
Chateau Latour Pauillac Premier Cru Classe AOP19958.49%£ 316.67


Crossing over to the right bank, predominant top performers over the last 12 months are St EmillMedoc Classed Growth Indexon 2005s and the 2001 Class A relative newcomers. Since March 2015 The Wine Owners Libournais Index is up 7%, coming off it's 3 year lows at that point.

Chateau Angelus Saint Emilion Premier Grand Cru Classe A AOP200553.85%£ 300.00
Chateau Angelus Saint Emilion Premier Grand Cru Classe A AOP200148.07%£ 176.57
Chateau Pavie Saint Emilion Premier Grand Cru Classe A AOP200145.67%£ 183.46
Chateau Angelus Saint Emilion Premier Grand Cru Classe A AOP200037.16%£ 301.79
Chateau Pavie Saint Emilion Premier Grand Cru Classe A AOP199834.59%£ 161.84
Chateau Larcis Ducasse Saint Emilion Premier Grand Cru Classe B AOP200527.82%£ 110.96
Chateau Pavie Saint Emilion Premier Grand Cru Classe A AOP200526.84%£ 232.57
Chateau La Violette Pomerol AOP200926.67%£ 208.33
Chateau Cheval Blanc Saint-Emilion Premier Grand Cru Classe A AOP200524.71%£ 433.34


What can we conclude from this? Some commentators are suggesting that value is returning to older back vintages on the back of 4 year declines. Relative value vs quality is likely to be a key driver of future value, for which we recommend you check out the new price per points builder on Wine Owners to which you'll need to subscribe.

Liv-ex have recently seen a predominance of trades of the 2010 vintage, and whilst there seems to be value returning selectively to the Classed Growths, one wonders if it's a little early yet the First Growths, whose starting release prices were in nose-bleed territory. Since 'the further they rise, the longer they fall' it may yet be a bit early to call.





The advent of the Market Network

by Wine Owners

Posted on 2015-08-13


The vision of a sharing economy is a far-reaching and powerful model that is beginning to shape current business practices by leveraging technology and allowing individuals to act as producers, entrepreneurs, collaborators, financiers and a myriad other roles.

“Marketplaces” provide transactions among multiple buyers and multiple sellers. Amazon and eBay are businesses that were created over the last two decades to enable peer-to-peer transactions. There is no doubting the power of creating an environment where thousands of businesses and millions of individuals can trade with one another.

“Workflow” Software as a Service (SaaS)platforms make it easy to manage and track activities that may be focused on short term or very long terms goals, whilst making it very easy for everyone to participate in the marketplace. The integration of workflow and marketplace is what distinguishes them from other marketplaces.

Consider Wine Owners activities’ through the prism of a Workflow Marketplace.



Firstly Wine Owners was conceived as a way of simplifying and simultaneously enriching the ‘wine lives’ of those with a passion for wine through a broad set of structured functionality and market information. This makes research, management and collection tracking substantially easier and less time consuming than before.

Secondly the trading exchange (marketplace) allows anyone to transact with anyone, in the knowledge that everyone has access to the same information, pricing assumptions, settlement and fulfillment processes. This many-to-many transaction pattern is key. Wine Owners is an N-sided marketplace — transactions happen between any participants, individuals and businesses, experienced and inexperienced alike. The pattern of trading counterparties is like a network. That makes Wine Owners both a marketplace and network.

A market network often starts by enhancing a network of professionals or high net worth individuals that exists offline. Many of them have been transacting with each other for years using email, mail, phone calls. By moving these connections and transactions into a SaaS Workflow, a market network makes it significantly easier for deals to be done and clients to get better service.

The Market Network is particularly relevant for complex, high value transactions. In wine, market fragmentation, tax status and specific logistical requirements make a prima facie straightforward commodity rather more complex as a peer-to-peer proposition. A market network is therefore the ideal model to simplify wine management and trading and so increase transaction velocity, satisfaction and build long-term relationships.



The principles that guide us are: the free flow of information; transparency in pricing and valuation; the ability to be in control of one’s own wine-related activities; the potential to sell excess wine; the creation of shared and accepted ‘rules’ about how to undertake and settle trades. All of these are important in contributing to an infrastructure where individuals and trade participants can benefit from the Wine Owners market network with confidence; safe in the knowledge they are operating within a sustainable and fair system.


Land values

by Wine Owners

Posted on 2015-06-10


Jane Anson’s insight into what courtiers and négoces think about the en primeur system makes for very interesting reading.

Perhaps what many Chateaux are unwilling to go on record with is the question of estate value.

Land values are at least partially driven by the cost per bottle that can be achieved by the Chateaux at the point of release. The higher the release price (whenever that is) the higher the cost of land per hectare. 

If you've just blown €200M on a slice of prime classed growth real estate, you want to support the underlying assumptions upon which that price was predicated. The balance sheet value of that asset and its ability to appreciate over time (and not see shareholder value diminished) becomes pretty crucial.

Is this one of the reasons why Calon released so little and massively cut back on the number of Négoces they allowed allocations, narrowing channels to market?

We totally agree with Jane Anson that a number of the First Growths got their pricing right. For me Lafite at first tranche and Mouton (Grand and Petit) got it most right vs market pricing of back vintages. There is future value in those purchases.




The sooner the 'funding' model of EP is clarified, the sooner the negativity surrounding the EP release period will evaporate. I think consumers dislike conflicting messaging and behaviour as much as channels of distribution do.

Let's say it; the top Chateaux (the only part of the EP market that appears to be worth bothering with) don't need us to fund the next vintage. Nor therefore do they have a need to leave enough on the table to convince us of the opportunity-cost of stockholding for them. That illusion is about to be shattered.


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